DIGITAL MARKETING REGULATORY UPDATE

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DIGITAL MARKETING REGULATORY UPDATE
Presenters

• Linda Goldstein, Partner, Manatt, Phelps,
  Phillips
• Randall Rothenberg, President, Interactive
  Advertising BureauDonna Declemente, President,
  DDC Marketing Group

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FTC Guides Concerning Use Of Endorsements And
Testimonials In Advertising

• Background
• Basic Requirements
• Impact on the Industry
• Association Perspective
• Impact on the Blogging Community
• Impact on the Brands

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Background

• Current Guides have not been revised since issued
  in 1980
• Commission initiated review of Guides in 2007
• Focus was on presentation of atypical results
  and typicality disclaimer safe harbor
• Minor reference to blogs and new media
• Final Guides issued on October 5, 2009
• Effective Date December 1, 2009

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What Are the Guides?

• Administrative interpretations intended to
  provide guidance on compliance with the law
• Do not have the force of law not a statute or
  formal trade regulation rule
• No fines for violating the Guides
• Violation of Guides likely will be viewed as
  violation of Section 5 of FTC Act

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What Do the Guides Cover?

• Endorsements and Testimonials
• Advertising messages that consumers are likely to
  believe reflect the personal opinion or
  experiences of a person or organization other
  than the advertiser
• Statements are perceived to reflect personal
  views of the speaker
• Consumers give such messages a higher degree of
  credibility
• BUT Applies only to SPONSORED ADVERTISING
• Endorsements paid for/solicited directly or
  indirectly by the Advertiser

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What the Guides Require?

• Prohibits deceptive or unsubstantiated
  representations
• Endorsements must reflect honest opinions,
  finding beliefs or experiences of the endorser
• Endorsement may not convey a claim that would be
  deceptive if made directly by the advertiser
• E.g., this supplement cured my cancer
• If the ad represents that endorser used the
  product, endorser must have been a bona fide user
  of the product
• Endorsements need to be presented verbatim but
  cannot be used out of context
• Requires disclosure of material connections
  between seller and endorser
• Special requirements for celebrity and expert
  endorsements

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The Key Changes

• Deletion of results not typical safe harbor
• Broader definition of sponsored advertising
• More restrictive requirements for disclosure of
  material connections
• Expanded liability for advertisers and endorsers
• Affirmative monitoring obligations for the brands

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The Key Changes Its a Whole New World

• Then Traditional Marketing -- Advertising was
  controlled and disseminated by the advertiser
• Now C2C Marketing -- Advertising messages are
  controlled and disseminated by the consumer as
  part of advertisers marketing campaign

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The FTC Goal

• Transparency and Honesty
• Consumers are speaking for marketers
• The audience doesnt know its an advertising
  message
• Product promotion by advertisers has always been
  regulated
• Guides make clear that product promotion by
  consumers is regulated too -- SAME RULES APPLY

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Key Changes

• Broader Definition of Sponsored Advertising
• Example 8
• Blogger purchases new dog food and talks about
  how it improved her dogs fur -- not an
  endorsement
• Blogger gets same new dog food free with coupon
  received from store based on her purchasing
  habits -- not an endorsement
• Same blogger joins network marketing program and
  periodically gets free products about which she
  can write reviews -- The new dog food came from
  that program ITS AN ENDORSEMENT
• KEY POINT BLOGS/SOCIAL MEDIA MAY BE CONSIDERED
  SPONSORED ADS

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Key Changes

• Broader Definition of Sponsored Advertising
• Relevant Factors
• Was the speaker compensated by the advertiser?
• Was the product or service provided for free?
• Did the advertiser or someone on advertisers
  behalf solicit the opinion?
• Is the speaker acting independently or on behalf
  of the advertiser or its agent?
• Regularly followed
• Part of a network marketing program
• LACK OF ADVERTISER CONTROL OVER CONTENT IS NO
  DEFENSE!

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What Does This Mean?

• Broader definition of sponsored advertising
  triggers disclosure of material connections
• Broader definition of sponsored advertising
  increases potential liability of advertisers for
  product claims

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Disclosure of Material Connections

• Receipt of free product is a material
  connection
• May depend on value of product
• Example College student/video game
  expert/blogger
• Employee statements on a message board employee
  relationship must be disclosed
• Incentivized street teams -- incentives offered
  and relationship to advertiser must be disclosed
• Disclosure obligation applies to blogger/endorser
  and to advertiser
• Blogger must disclose
• Advertiser must monitor

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Disclosure of Material Connections

• Payment to celebrities -- disclosure generally
  not required in traditional media
• Celebrity endorsements in non traditional media
  disclosure may be required
• Tennis player touts results of surgery in a
  clinic on social networking site -- Is being paid
  by clinic for the endorsement

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Liability for Product Claims

• If endorsement is sponsored advertising
  advertiser and endorser are liable for product
  claims being made
• Example 5
• Skin care company participates in service
  matching advertisers with bloggers
• Blogger is provided free product and asked to
  submit review
• Blogger writes that lotion cures eczema
• Blogger and advertiser liable for product claims
• Material connection must be disclosed

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Challenges For The Blogger Community

• To speak or not to speak
• That is the question!

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The Association Perspective

• Regulation of free speech or commercial
  speech
• A fair or flawed process?

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Brand Challenges

• Lack of clarity/bright lines
• Enhanced risks of liability
• The risk/reward ratio
• Practical/implementation challenges
• Best practices

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Lack of Clarity/Bright Lines

• Expansion of Guides accomplished through
  examples only
• Issues are fact specific
• Examples are fact specific
• Numerous gaps exists

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Lack of Clarity/Bright Lines

• When is it a sponsored ad or endorsement
• Remember the FTCs motives
• Is the speaker acting independently
• Was the speakers opinion solicited/initiated by
  the advertiser
• Is the endorsement an intended part of an overall
  marketing campaign

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Lack of Clarity/Bright Lines

• What is a material connection?
• Freebies
• Advertising on the bloggers site?
• Furnishing of prizes for contests/prize
  promotions
• WHEN IN DOUBT-- DISCLOSE

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Increased Liability and Risk

• Liability for unsubstantiated product claims
• Liability for claims/challenges by competitors
• Liability for bloggers failure to disclose
  material connections on their own sites/posts

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Practical Challenges

• Effective Date
• Complying with disclosure requirements in media
  with limited real estate
• Social media platforms encouraged to develop
  protocols
• Example hashtags such as paid or ad

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Best Practices

• Develop a Social Media Policy for sponsored
  speakers
• Substantive conduct provisions -- Dos and Donts
• Prohibition on product claims
• Disclosure of material connections/freebies
• Procedures for training speaker and bloggers on
  the Guides
• Procedures for monitoring communications
• FTC ANALYSIS MANDATES SUCH A PROCEDURE

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Best Practices

• Conduct periodic audits
• Ensure close collaboration between marketing and
  legal
• Make sure your PR and other social media agencies
  are well versed in the Guides
• Clearly delineate roles and responsibilities
  within the company and among agencies